Taxes on earned income of spouse?

Cynpen, this is an interesting if not fascinating issue.   I hope you'll take the time to return as and/or after you get advice and let us know what you've learned.

See the article here on AC, "The top 5 strategies for protecting your money from Medicaid."
I searched for "Community spouse assets".

Taken from that article:

"An important feature of the Medicaid laws is that transfers between spouses are permitted, are not subject to the look-back period and thus do not result in any penalty. In the case of a married couple, one basic Medicaid-planning strategy is to transfer any assets that are in the name of the spouse who needs care to the name of the well spouse. (In cases where the ill spouse is in an institutionalized setting like a nursing home and the well spouse remains in their home in the community, the well spouse may be referred to as the “community spouse”).

See a tax CPA specializing in "community spouse".

Suggest you seek counsel from an expert. Start with the term "community spouse" to discover your mother's legal rights to have income and assets counted as separate from the spouse in a NH on Medicaid.

I know nothing about it, just that this concept does exist.

Another thought - I'm not sure that mineral rights royalties would be considered "earned income" as you've described it.   Categorization of income makes a difference in how it's treated.

Becky is right. Sale of mineral rights can be complicated.   It goes well beyond the issue of how to file.

Just did some quick checking.   Sale of mineral rights could be considered sale of business property, raising the issue of whether it's a gain or loss and whether it's an operating and income producing business venture.      

I have no idea whatsoever how Medicaid would treat an operating, income producing, or losing, commercial venture in mineral rights.

I have vague recollections about the issue of mineral rights values during real estate transactions, including whether or not the rights actually passed to a new owner if a property subject to mineral rights was sold.    That was quite a while ago though.

And I also have vague recollections of prohibitions on sales of mineral rights in some states.   And while I don't claim to have any insight or expertise on this issue, I believe there may be considerations of whether or not the wells are still viable and producing, affecting their value, and perhaps linking to the issue of a business sale consideration.   

This is a highly complex area; you need an accountant familiar with mineral rights to guide you and probably an elder law attorney after that to address the issue of business income, producing well, gain or loss.   Otherwise costly mistakes could be made.

https://www.irs.gov/irm/part4/irm_04-041-001

See this site, toward the end of the article:

https://www.caddominerals.com/resource-center/resources-for-owners/tax-forms-all-mineral-rights-owners-should-know-about/

I agree you need a CPA. The only time I have heard of someone who claimed head of household was my daughter. She was single raising a child. Your Mom is not single. She is still married even though Dad is in a NH.

You need to get a CPA to do her taxes. Even though dividend checks are low now. They could go up the next month. Mineral rights dividends are not a do it yourself project.

You need to consult with a certified Eldercare attorney. Did you do that before dad sold the mineral rights to mom?